The Weekly Standard reserves the right to use your email for internal use only. Occasionally,
we may send you special offers or communications from carefully selected advertisers we believe may be of benefit to our subscribers.
Click the box to be included in these third party offers. We respect your privacy and will never rent or sell your email.

A bona fide economic Nostradamus, it would seem. But a perusal of her past reveals that Yellen’s soothsaying record is decidedly more muddled.

Here is Yellen in a speech in October 2005, when she was chairman of the San Francisco Fed. Remember, this was, according to Matthew O’Brien, back when she was “raising concerns about the housing bubble.”

In my view, it makes sense to organize one’s thinking around three consecutive questions—three hurdles to jump before pulling the monetary policy trigger. First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble?

My answers to these questions in the shortest possible form are, “no,” “no,” and “no.”

She went on to say that, even in the event of a housing downturn, “it could be large enough to feel like a good-sized bump in the road, but the economy would likely to be able to absorb the shock.”

A few months later, in a speech in April 2006, Yellen noted the remarkable uptick in housing prices (i.e. the catastrophic housing bubble) in the San Francisco Bay Area. Yet she all but shrugged the high prices off. “There are well-known and unique features of this area that lend some justification to its high housing values,” she said, “First, there is not much land available for new home building, so the supply of new homes is fairly limited. In addition, this area enjoys very favorable lifestyle amenities and it has a job base that attracts high-income residents.” (San Francisco housing prices would end up falling by more than 50 percent from their 2006 peak, one of the worst performances in the country.)

At a Fed meeting in September 2006, Yellen was similarly sanguine, despite by-then falling home prices: “The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,” she allowed. But not to worry! “Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting,” she cooed.